2025 results slightly miss our forecast; 1Q26 results in line HBIS Company announced its 2025 and 1Q26 results: In 2025, revenue fell 2.9% YoY to Rmb118.14bn, and attributable net profit rose 41.6% YoY to Rmb1.00bn, slightly missing our expectations due to falling steel prices and weak demand. In 1Q26, revenue fell 3.8% YoY and grew 45.0% QoQ to Rmb31.30bn. Attributable net profit grew 39.1% YoY and 80.4% QoQ to Rmb323mn.

Steel output and sales volume rose slightly; profitability showed resilience. The firm's steel output and sales volume rose 6.3% and 3.2% YoY to 28.09mnt and 28.12mnt in 2025. The selling price and gross profit per tonne of steel fell Rmb171/t YoY and rose Rmb9/t YoY to Rmb3,616 and Rmb397/t, and the gross margin of steel products rose 1.0ppt YoY to 11.5%.

Sales volume and gross margin of vanadium products increased. Sales volume of vanadium products rose 29% YoY to 22,000t, and gross margin rose 12.3ppt YoY to 22.8%.

Expense ratio declined. In 1Q26, the firm's financial, G&A, and selling expense ratios were 4.59%, 2.38%, and 0.09%, down by 0.19ppt, 0.13ppt, and 0.01ppt from 1Q25.

Operating cash flow improved notably. Net operating cash flow rose 2.3% YoY and 13.3% YoY to Rmb9.90bn and Rmb3.46bn in 2025 and 1Q26, mainly due to rising sales of high-end products, continued cost control, and optimized debt structure.

Trends to watch

Deepening product mix adjustment; cost optimization to boost earnings. The firm further optimized its product mix and accelerated the shift of core production lines toward high value- added areas. Sales volume of cold-rolled automotive plates rose 39% YoY and output of high-end vanadium and aluminum alloys grew 123% YoY. The two new areas of Tangshan Iron & Steel and Handan Iron & Steel have started to benefit from their advantages in location and equipment. The Tangshan Iron & Steel New Area applies metallurgical process engineering to achieve synergies between carbon emission reduction and intelligent transformation. The Handan Iron & Steel New Area has been recognized as a “Smart Manufacturing Demonstration Factory” by the Ministry of Industry and Information Technology, and its operating efficiency improved. The firm's cost per tonne of steel in 2025 was Rmb261/t lower than in 2024, and its production-demand matching ratio increased 25%. In addition, effective expense control was another bright spot in 1Q26 profit growth.

The firm continues to strengthen core competitive advantages on the back of high-end material upgrades and green and low-carbon transformation. The firm continues to transform and upgrade its operations from selling steel products to offering materials, and toward manufacturing combined with services, with the added value and market competitiveness of its products steadily improving. Meanwhile, its low-carbon transformation and carbon management system construction have paid off, and its green steel products have achieved largescale exports, which meet EU carbon certification requirements. Coupled with policy tailwinds for leading companies' production capacity amid the trend of green and differentiated production cuts in the industry, and the upgrading of product mix toward high-end products, these have highlighted the firm's competitive advantages.

Financials and valuation

Given differentiated production cuts in the industry and the firm's transformation from selling steel products to offering materials, we leave our 2026 and 2027 attributable net profit forecasts unchanged at Rmb1.64bn and Rmb2.04bn. The stock is trading at 15.3x 2026e and 12.3x 2027e P/E. We maintain an OUTPERFORM rating and our target price of Rmb3.2, implying 20.3x 2026e and 16.3x 2027e P/E and offering 32.5% upside.

Risks

Sharper-than-expected decline in exports; disappointing policy implementation; disappointing recovery of downstream demand.